Troutman Pepper Weekly Consumer Financial Services Newsletter

By Ethan G. Ostroff, Elizabeth Briones, Addison Morgan, Thailer Buari, Jed Komisin & Alan D. Wingfield on November 21, 2022

To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Federal Activities

State Activities

Federal Activities:

On November 18, U.S. Assistant Secretary of the Department of the Treasury (Treasury) Elizabeth Rosenberg provided remarks at the Crypto Council for Innovation. She spoke on a report published by the Treasury, an “Action Plan to Mitigate the Illicit Finance Risks of Digital Assets,” which identifies seven priority actions, including improving global anti-money laundering/countering the financing of terrorism (AML/CFT) regulation and enforcement, strengthening U.S. supervision of the virtual asset service providers sector, and engaging with the private sector. For more information, click here.
On November 17, Financial Stability Board Working Group for Crypto Assets Chair Steven Maijoor addressed the need for a globally consistent digital asset regulatory framework and suggested that the current structural vulnerabilities of the market may “soon reach a point where they represent a threat to the stability of the global financial system.” For more information, click here.
On November 17, S. Deputy Secretary of the Treasury Wally Adeyemo continued a series of roundtable discussions to gather insight on IRS modernization efforts that will improve accessibility and service equity as part of implementing the Inflation Reduction Act. Adeyemo convened a roundtable discussion with national advocates representing underserved communities to identify ways the agency can improve accessibility and responsiveness to all taxpayers. For more information, click here.
On November 17, the Consumer Financial Protection Bureau (CFPB) announced it is seeking public comment on its proposal to develop a new data set to better monitor the auto loan market. According to the CFPB, greater visibility into market trends would allow lenders and investors to spot emerging opportunities, improve risk management practices, and ultimately expand access to credit and refinancing. The CFPB will be accepting comments on its proposal until December 19. For more information, click here.
On November 17, CFPB Director Rohit Chopra issued prepare remarks at the Financial Literacy and Education Commission, where he spoke about consumer complaints related to crypto assets. For more information, click here.
On November 16, the Federal Trade Commission (FTC) released a bulletin addressing “recovery services” scams, in which a fraudster may attempt to persuade a consumer, who has lost money on cryptocurrency exchange, to pay the fraudster a fee to recover the lost funds. For more information, click here.
On November 16, U.S. Treasury Secretary Janet Yellen released a statement discussing the recent collapse of FTX and urging Congress “to move quickly to fill the regulatory gaps” identified in various reports issued under President Biden’s Executive Order on Digital Assets. For more information, click here.
On November 16, while presenting remarks before the House Committee on Financial Services, Federal Reserve Board Vice Chair of Supervision Michael Barr discussed the digital assets market and emphasized that stablecoins can be subject to destabilizing runs and that legislative action would help promote responsible innovation and protect the financial system. For more information, click here.
On November 14, the U.S. Supreme Court denied YouTube influencer and BitConnect recruiter Glenn Arcaro’s petition to review the Eleventh Circuit’s assessment of the scope of statutory seller liability under Section 12(a)(1) of the Securities Act of 1933. In Parks v. BitConnect Ltd., et al., No. 20-11675, a class-action lawsuit in which Arcaro was a named defendant, the Eleventh Circuit determined that a direct solicitation to a prospective buyer is not necessary to satisfy statutory seller liability. Therefore, the Eleventh Circuit reasoned that the lawsuit’s allegations of Arcaro’s extensive online video promotion to the public of BitConnect, a cryptocurrency exchange, and BitConnect Coin, the native cryptocurrency of BitConnect, was sufficient to state a claim under Section 12(a)(1) of the Securities Act of 1933. On February 25, 2022, the U.S. Department of Justice indicted Satish Kumbhani, founder of BitConnect, on multiple charges, including conspiracy to commit commodity price manipulation, as BitConnect operated as a Ponzi scheme that misappropriated approximately $2.4 billion from investors. For more information concerning the Eleventh Circuit’s opinion in Parks, click here. For more information concerning the U.S. Supreme Court’s denial of certiorari, click here.
On November 16, the CFPB released a new Supervisory Highlights report, focusing on the auto servicing industry, consumer reporting, mortgage servicing, and COVID-19 relief funds. The report highlights the CFPB’s continued focus on so-called junk fees and inaccurate credit reporting. This edition of Supervisory Highlights was notable for the announcement that the CFPB had created a “Repeat Offender Unit” within supervision, the focus of which will be to “enhance the detection of repeat offenses, develop a process for rapid review and response designed to address the root cause of violations, and recommend corrective actions designed to stop recidivist behavior. This will include closer scrutiny of corporate compliance with orders to ensure that requirements are being met and any issues are addressed in a timely manner.” For more information, click here.
On November 15, the FTC announced that it is extending by six months the deadline for companies to comply with some of the changes the agency implemented to strengthen the data security safeguards financial institutions must put in place to protect their customers’ personal information. The deadline for complying with some of the updated requirements of the Safeguards Rule is now June 9, 2023. For more information, click here.
On November 15, the CFPB filed a petition for a writ of certiorari to the U.S. Supreme Court, requesting expedited review of the Fifth Circuit’s decision finding its funding structure unconstitutional. On October 19, a three-judge panel of the Fifth Circuit Court of Appeals held that the CFPB funding mechanism violates the appropriations clause because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead receives funding directly from the Federal Reserve based on a request by the CFPB’s director. For more information, click here.
On November 15, the CFPB issued two reports on the tenant background check industry. The reports describe how errors in these background checks contribute to higher costs and barriers to quality rental housing. Too often, these background checks — which purport to contain valuable tenant background information — are filled with largely unvalidated information of uncertain accuracy or predictive value. While renters bear the costs of errors and false information in these reports, they have few avenues to allow tenant screening companies to fix their sloppy procedures. The CFPB’s analysis of more than 24,000 complaints highlighted the renter challenges associated with the industry’s failures to remove wrong, old, or misleading information, and to provide adequate investigations of disputed information. For more information, click here.
On November 14, the Financial Industry Regulatory Authority (FINRA) announced that it will begin conducting targeted exams of brokerage firm marketing practices relating to crypto assets. The assessment will require brokerage firms to provide all retail communication concerning crypto assets distributed between July 1 and September 30 of this year. For more information, click here.
On November 14, Office of the Comptroller of the Currency (OCC) Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer delivered keynote remarks at the 2022 CRA & Fair Lending Colloquium where she discussed the OCC’s commitment to “elevating fairness” and ongoing efforts to ensure that its regulated institutions comply with the federal fair lending laws. In her comments, Gardineer explained how the OCC will strategically execute on its commitment to fair lending through the agency’s focus on three strategic goals for 2023-2027: (1) agility and learning; (2) credibility and trust; and (3) leadership in supervision. For more information, click here.
On November 14, the FTC announced that it is sending payments totaling more than $9.8 million to consumers who were harmed by Illinois-based auto dealership’s junk fees and discriminatory practices. The FTC and the State of Illinois sued in March 2022, alleging that employees were sneaking illegal junk fees for unwanted “add-ons” onto vehicle purchases and discriminating against Black consumers. According to the joint complaint, eight of the company’s dealerships illegally tacked on junk fees for unwanted “add-on” products such as payment insurance and paint protection, costing consumers hundreds or even thousands of dollars. The complaint also alleged that the company discriminated against Black consumers by charging them more for add-ons and financing. For more information, click here.
On November 11, the U.S. District Court of Wyoming ruled that Custodia Bank plausibly alleged that the Federal Reserve Bank of Kansas City (FRBKC) has unreasonably delayed decisioning Custodia’s request for master account access, since the “Master Account Agreement,” which Custodia submitted to the FRBKC notes that applications are generally processed in five to seven business days, and Custodia’s application has been pending since October 29, 2020. For more information, click here.
On November 9, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), pursuant to Executive Order 14059 (EO 14059), designated three individuals for supplying illicit fentanyl, synthetic stimulants, cannabinoids, and opioids to U.S. markets. OFAC also included various Bitcoin, Bitcoin Cash, and Ethereum addresses as identifiers of the three designated individuals on the Specially Designated Nationals list. This action marks the first time EO 14059 has been used to designate activities related to the sale of illicit drugs via darknet marketplaces. For more information, click here.
On November 4, the Federal Reserve Board invited public comment on a proposal to publish a periodic list of depository institutions that have access to Federal Reserve accounts — often referred to as “master accounts” — and payment services. For more information, click here.

State Activities:

On November 16, the California Department of Financial Protection and Innovation (DFPI) issued a notice to suspend SALT Lending LLC’s California Financing Law license for 30 days pending the DFPI’s investigation into SALT’s recent announcement to pause client withdrawals on its platform. Although the extent of the impact has yet to be determined, SALT, a crypto-lending platform, was affected by the recent collapse of cryptocurrency exchange FTX. For more information, click here.
On November 15, the city council of Toledo, Ohio (Council) and the county commissioners for Lucas County (Commissioners), where Toledo is located, combined forces to put $1.6 million toward purchasing residents’ medical debt. The Council decided to use $800,000 of the $180 million it received from the federal government as part of the American Rescue Plain Act. The Commissioners agreed to match the city’s funding. The ordinance that will enable the Council and the Commissioners to carry out this plan of eliminating up to $200 million in past due medical expenses for Toledo residents is expected to be the first attempt by government at any level, to aid residents in managing unpaid medical debt. The individuals seeking to have their debt forgiven must earn less than four times the federal poverty level or have unpaid medical debts that exceed 5% of their annual income. For more information, click here.
On November 15, New York Department of Financial Services Superintendent Adrienne Harris keynoted a Brookings Institute event, titled “Digital Asset Regulation: The State Perspective.” During her speech, Harris called on Congress to develop a federal digital asset regulatory framework that resembles New York’s state regulatory regime. For more information, click here.
On November 15, the Federal Reserve Bank of New York’s Innovation Center announced that it will launch a 12-week pilot program for a central bank digital currency (CBDC) to “explore the feasibility of an ‘interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger.'” This pilot program follows the initial phase of the CBDC trial, which examined foreign exchange spot trades to determine whether a blockchain solution could enhance the speed, cost, and access to cross-border wholesale payments. Notable banking institutions and financial services providers will be participating in the pilot project. Although federal regulators have not agreed on whether to launch a digital dollar in the country, several agencies and individuals in the private sector have been experimenting with the possibility. For more information, click here.
On November 11, the California DFPI issued notice of its intent to suspend a cryptocurrency lender’s license for 30 days while DFPI investigates the lender’s recent announcement that it will limit some of its platform activity. The lender made the announcement on its social media page, acknowledging that is unable to “operate business as usual” due to lack of clarity regarding the status of several crypto asset platforms. The cryptocurrency lender has reportedly terminated its loan offerings in California and has asked its clients not to make deposits to its platform. For more information, click here.